The South Carolina Department of Revenue recently ruled that business data survey services were non-taxable professional services.
The taxpayer was a company that provided a data survey service for businesses. The taxpayer would collect data from a customer, analyze it, and then provide the customer with insights and solutions from the data for that business. To present their insights and conclusions to the customer, the taxpayer would either convey their information in person or through online access to its reporting software. The Department classified the data survey service as a professional service and the use of the taxpayer's reporting software as a taxable communication service.
South Carolina only taxes services that it designates as taxable. Professional services are not listed as taxable in South Carolina, but communication services are listed as taxable. When a taxpayer sells both taxable and nontaxable goods or services, South Carolina uses the "true object" test to evaluate whether the entire transaction is taxable. When applying the true object test to this transaction, the Department found that the true object of the transaction was the sale of nontaxable professional services and that the communication services were incidental to the sale.